Palatin up; Genaera gouged by reverse split plans; Onyx off; RegeneRx up; KOS up

By Ronda Fears

Memphis, Aug. 9 - Biotech stocks followed the Nasdaq into negative territory in the last hour of trade Wednesday after being on higher ground most of the session, but traders were not overly concerned.

"The trade is on volatility right now," said a stock trader at a hedge fund in Chicago.

"It doesn't matter what sector you pick really right now, but biotech has paid well this past week to 10 days. We saw a big spike at the front part of this week and today a big swing down. It's all good, depending on where you are sitting."

That said, there were some players picking stocks to hold, as always. One name bandied about in that vein by a couple of buyside sources was Palatin Technologies, Inc., which is partners with King Pharmaceuticals, Inc. on a sexual dysfunction drug, bremelanotide, that is being tested in post-menopause women for sexual arousal dysfunction.

"We like Palatin. It should have positive data on the phase 2b trial in less than a month ... [and] very likely to be positive," said a buyside source in Boston. "And most investors aren't following the story closely. It's a screaming buy and we love our position in it."

Palatin shares (Amex: PTN) added 9 cents on the day, or 4.07%, to $2.30.

Another fan was equally enthusiastic, saying, "The news potential is astounding on Palatin. Palatin could be the biggest story stock ever ... could be. Sex sells and Palatin is all about female unmet medical needs. Palatin just released very small phase 2a studies in both pre- and post-meopausal women. The results look very good, but more importantly, the results were not a disaster. The biggest disaster in Palatin is the stock price. But, with trial after trial showing PT141 [bremelanotide] works, the disaster cloud is being lifted and now the stock is oversold and getting upward momentum."

Beyond bremelanotide, he noted Palatin also is working on melanocortin receptors in depression and obesity. "This research is hot area and will be hot money for investment," he said.

Genaera falls over 8%

In a somewhat surprising downside move, Genaera Corp. fell sharply after announcing plans to seek a reverse stock split in order to meet listing requirements related to minimum share price. Such news more often would boost a share price, but it sent the stock reeling, which traders largely attributed to exits by participants in a recent PIPE transaction.

Genaera shares (Nasdaq: GENR) lost 3.49 cents on the day, or 8.42%, to 37.95 cents.

"Genaera is in trouble. Everybody who bought the PIPE just lost huge," remarked a sellside trader.

"It is suicide holding this stock until some positive news turns up. And that isn't likely for some weeks yet. It might be worth picking up a few at between $0.20 and $0.25 over the next week or two, however."

In late June, Genaera pocketed about $25 million in a private placement of 35.6 million shares at $0.70385 each to a group of institutional investors, including existing shareholders. The investors also got warrants for a total of 26.7 million shares, exercisable at $0.6101 each - smack where the stock was trading when the deal was announced.

If the reverse split is approved, it would be based on five ratios: 1-for-6, 1-for-7, 1-for-8, 1-for-10 or 1-for-12. The company has about 104.6 million shares outstanding.

Plymouth Meeting, Pa.-based Genaera is focused on treatments for eye, respiratory and metabolic disorders, as well as cancer.

"There is the sign they are failing. I am so disappointed to see them want a reverse split," the trader continued.

"They can't give any news that will get the price above a dollar [the minimum price that caused the delisting threat]."

A buysider guffawed at the price drop, however.

"The perception that it is a bad thing is causing the price to drop which, as far as I'm concerned, presents an opportunity to buy more shares on the cheap. I'd rather see a reverse split than another PIPE in order to address the pending delisting problem, simply because the reverse split does not adversely affect equity and a PIPE does," the buysider in Atlanta said.

"As I have said before, nothing really matters now except for the interim 212 results [for Evizon in age-related macular degeneration]. If they are not good enough to induce a buyout or a partnership, then I think Genaera will be out of business fairly soon, reverse split or not. In either event, the reverse split won't mean a thing. At the moment, Genaera is down more than 5 cents - ridiculous but a gift to anyone who wants to bet that the 212 trial will demonstrate greater efficacy. I just bought at $0.3360."

RegeneRx adds over 5%

RegeneRx Biopharmaceuticals, Inc. got a big bounce, though, from a tiny $545,000 grant from the Food and Drug Administration. While the news seemed to be a vote of confidence on its technology, many onlookers thought the rise was over-blown.

"The news about RegeneRx is definitely good but at the same time this is only confirming what we, the investors, already thought was true about TB4 [Thymosin beta 4] for the most part," said a buyside market source.

"It seems like RegeneRx's price is starting to get over-priced off one story."

RegeneRx shares (Nasdaq: RGN) gained 11 cents, or 5.09%, to $2.27.

The Bethesda, Md.-based biotech said the grant from the FDA's Office of Orphan Products Development is for its drug candidate based on Thymosin beta 4. The company described TB4 as a chemically synthesized copy of a natural human peptide that circulates in the blood and plays a role in the protection, regeneration, remodeling and healing of tissues.

RegeneRx said the two-year grant will be used on a phase 2 clinical trial for TB4 in wound healing for epidermolysis bullosa - a skin condition that causes blistering - which is enrolling patients.

Onyx falls nearly 12%

Back to negative territory, Onyx Pharmaceuticals, Inc. took a big hit Tuesday as players became impatient after the company posted a wider second-quarter net loss and its update on the cancer drug Nexavar was less than compelling to hold on.

Onyx shares (Nasdaq: ONXX) fell $1.84, or 11.84%, to $13.70.

The company posted a second-quarter net loss of $31.5 million, or 76 cents a share, worsened from a net loss of $18.1 million, or 51 cents a share, with revenue of $150,000 versus nothing a year ago.

Onyx said it plans to begin additional randomized trials of Nexavar in lung, breast and other cancers in the next year. Onyx is collaborating with a Bayer AG unit on the drug, which produced the revenues recorded for the quarter. Nexavar sales beat analysts' expectations, but many onlookers said growth there is slow.

"I think the second-quarter results are disappointing. Nexavar sales are only up from $23.7 million in first quarter to $32.2 million in second quarter, and despite the increase in sales, net loss is up from $20.35 million in first quarter to $31.5 million in second quarter due to higher expenses," said a buysider in Boston.

"That sucks really bad. I was hoping for over $40 million in sales and a reduced net loss. Without some really good guidance to give, a 10% hit is not surprising."

A sellside market source, however, said there is potential for Nexavar, though, perhaps a long way down the road and maybe off course from the Onyx trials.

"I am still hoping for good results from [off-label usage for] melanoma or liver cancer soon, but it's too soon to tell if that's going to fly," the sellsider said. "Meanwhile, I would be holding."

KOS off highs but gains

KOS Pharmaceuticals, Inc. came off the day's highs but still settled the session in slightly higher ground as news stirred conflicting views on the biotech's stock story.

"The market makers are doing a good job of keeping the price steady until institutions divest themselves of current share holdings (that's not speculation). When done, this stock is going to crater. Sorry, but it's true," said a buyside source in Florida."

KOS shares (Nasdaq: KOSP) went up to $43.70, a gain of more than 3%, but settled the day up by just 54 cents, or 1.29%, at $42.46.

The buysider said lagging action from the company on its stock buyback program, which he sees as "no support from the company for its stock price," and its investment in a small biotech for a cancer program, were negatives weighing on the KOS story Wednesday.

Sellside onlookers said the longer-term positives in KOS outweigh negatives from the options-related restatement of historical results, however, which the company said could amount to expensing another $10 million or so going back to 2001.

On Wednesday, Arisaph Pharmaceuticals, Inc. announced the second closing of a $16 million financing round, raising an additional $8 million from KOS and 2004 Oikos Investment Partners, LP, triggered by development milestones in its DPP IV inhibitor (ARI 2243) and ultra-smart cancer program. Arisaph plans to use the proceeds to advance ARI 2243 into human clinical tests and select lead candidates of its ultra smart pro-drugs for cancer.

KOS and Boston-based Arisaph have formed a strategic partnership in which Arisaph designs and synthesizes new chemical entities for three specific targets to treat cardiovascular disorders. Through this arrangement Arisaph has designed and synthesized ARI 1778 for atherosclerosis and ARI 2035 for raising HDL (high-density lipoproteins), or "good" cholesterol.

Adrian Adams, KOS chief executive, said that the company generated $197 million in cash from operations over the past year, almost doubling its cash position.

"This strong cash flow generation has allowed us to build our pipeline, make additional measured investments in R&D and fund successful corporate development initiatives. These initiatives have positioned the company well to meet our short, medium and long-term goals," Adams said in a news release. "In addition, excellent progress is being made toward many of the milestones set for this transition year, particularly in R&D. We believe that we are on track to achieve our goal of launching two new products and filing a New Drug Application for our Niaspan/simvastatin product, Simcor, in 2007."

But as for Niaspan/lovastatin for peripheral arterial disease, which was in phase 3 studies under a co-promotion agreement with Takeda Pharmaceuticals North America, Inc., KOS said it has recently notified Takeda that, in view of a decision to increase the size of its sales force in order to fully maximize commercial opportunities in 2007 and does not intend to extend the co-promotion arrangement, which expires at year-end 2006. In fact, the company has decided, based on inconclusive overall results from the study, to discontinue development of Niaspan/lovastatin for PAD altogether.

AVI BioPharma ends flat

AVI BioPharma, Inc. holders were disappointed with a small uptick, which did not hold to the close, after the company announced publication of positive results from a new class of antibiotics using its Neugene antisense technology.

"There should be a decent spike today. My guess is above three dollars," said a sellside trader early in the day.

AVI BioPharma shares (Nasdaq: AVII) did get close, trading as high as $2.97, but dropped back to settle the day unchanged at $2.69 with just 682,643 shares changing hands versus the norm of 1.3 million shares.

"Disappointing volume on the news," the trader remarked after the close. "Back in the day (pre-May), this news would have drawn big time attention. Shows how much credibility this management lost on the botched HCV [hepatitis C vaccine] trial. A major success is needed to restore that confidence."

AVI BioPharma said preclinical results from a new class of antisense-based antibiotics, called NeuBiotics showed it has developed peptide conjugates effective in delivering NeuBiotic compounds directly into bacteria. NeuBiotics are both specific and effective in blocking the bacterial genetic target, the company said, and targeted bacteria can be eliminated without causing toxicity to human cells. Also, the company said the NeuBiotics eliminated both E. coli and S. typhimurium infection in cell culture, which demonstrates its broad application.

"Once again, [it's] only preclinical fluff. They need some follow through beyond phase 1 of some product. I do still hold some shares but sold most at $8.50," said a buysider in Florida.

"Before anyone gets too worked up about this, this is still fairly basic and early preclinical research."

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